Well said Shershah, however like I wrote earlier, lets not bring politics in this rather straight forward discussion. I agree that the smaller players may die if everything becomes free, however as we agree, customer will gain from it.
Smaller players can collaborate with the bigger ones to survive in the market and bring better contents for that media.
I'll jump in here. You say no politics. However, the basic premise behind this entire thread is a socialistic one. Terms used in this discussion so far like "unfair", "dual taxation", "Ideally all the channels should be FREE", "why do we pay for xyz..", make no sense at all from a free market capitalistic point of view.
It makes just about as much sense as saying something like "Why does Dell make such flimsy laptops" or "Why does Birla Sunlife have such nasty clauses".
Don't buy or subscribe to the service if you don't like it, and switch over to a competitor. Different broadcast media service providers will always try to differentiate their service offerings or "products" as they like to call it. Some will offer you el cheapo channels with loads of ads and bad video quality, while others will make it premium by giving you less ads and better (HD) quality. A car analogy is much simpler - you know what you get when you buy a Maruti or a Toyota or a Merc. Another thing: any organization will try to make as much money as it can for its stakeholders. They don't have a moral or social responsibility to ensure that they are charging you a "fair price". It is up to you as a consumer to decide if you find their offering fairly priced or not.
Yes, a valid point can be made that as it stands today, no satellite media broadcaster is offering a premium service with zero ads and/or high quality HD. This is only because the market itself has not evolved or matured enough (like say the car market). Currently, everybody is trying to copy or catch up with the other. No one is truly trying to differentiate, except perhaps TataSky who have really good customer support.
However, to say something like "Ideally all the channels should be FREE" or "Why do we pay for advertisements" makes no sense, at least in a free market economy.
Perhaps internet streamed media might be the answer you are looking for?